We overcontributed $6000 to our HSA in 2025, and had the HSA Administrator refund that amount (plus earnings) on March 20, 2026. How/where do I enter this?
I tried entering as an additional 1099-SA with Distribution Code 2 = Excess Contributions, but TurboTax does not show this as taxable income.
Please help!
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If you were using TurboTax, then if the excess contributions came through your employer (i.e., the code W amount in box 12 on your W-2), the moment that the excess is discovered by TurboTax, TurboTax will add it back to Other Income on Schedule 1 (1040). Check for yourself. You don't have to do anything to make this happen.
If the excess contributions were "personal" contributions (i.e., NOT through your employer), then TurboTax would just reduce the amount on line 13 of Schedule 1 (1040) by that amount.
The HSA administrator should send you a 1099-SA for this distribution for excess contributions, but you don't enter this until early 2027 on your 2026 return. Since the excess was already added back automatically, the 1099-SA with a distribution code of '2' doesn't have to do anything with it (in fact, when the distribution code on the 1099-SA is '2', the box 1 amount (excess contributions) is ignored. Only the earnings in box 2 will be added to your return in 2026.
Yes, this is confusing, but TurboTax is handling it correctly.
The excess contribution was indeed added as Other Income on Schedule 1 (1040), but our tax due was not affected.
So if I understand correctly, the excess contribution that has been refunded will not be taxed until the 2026 tax year? Correct?
No, if the excess contributions were made through your employer (i.e., part of the code W amount in box 12 on your W2), then it is added back to income immediately, i.e., on tax year 2025 - the return you are currently working on.
It is only the earnings reported on the 1099-SA that will be taxed on your 2026 return.
The $6000 was an excess contribution only because we signed up for Medicare Part A in May, not realizing that invalidated contributions to the HSA from May forward. (And really frustrating because we still had group insurance, and did not need to sign up for Medicare Part A. Expensive lesson learned.)
When I modified my current return in Turbo Tax to reflect Medicare from May-December 2025, TT accurately placed the excess contribution as Other Income on Schedule 1 (1040).
Why did our overall tax due not change?
If it makes you feel better, many people get signed up for Medicare Part A whether they like it or not, because they signed up for Social Security (The SSA will automatically sign you up for Part A in this case). You can't avoid it once you sign up for Social Security.
To quote the SSA: "If you are age 65 or older and receive Social Security benefits, you will be automatically enrolled in Part A."
As for why your tax did not appear to change, this is a bit complicated.
When your W-2 is entered, the code W amount in box 12 are HSA contributions made through your employer. Before the W-2 is printed, the code W amount is removed from Wages in boxes 1, 3, and 5 (this is how this type of HSA contribution is a benefit, because it was never in your income in the first place).
However, the IRS does not consider these contributions to be valid until you demonstrate that you have the appropriate HDHP insurance. So as soon as your W-2 is entered, the code W amount is added back to your Wages, pending you showing proper insurance coverage in the HSA interview. You don't see this, unless you are watching the Refund Meter very closely (which I discourage).
If you show proper HDHP coverage in the HSA interview, then the code W amount will be removed from Wages, putting Wages back to where they were on your W-2. But in your case, all or part of your code W amount was disallowed, so they were added back to income, which is where they were when you first entered the W-2.
Of course, I cannot see your return, but I hope this will help explain why you see what you see.
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